CANADA’S FOUNDING IDEAS SERIES Free Trade within Canada: Say Goodbye to Gold Seal Ian A Blue, Q.C. The Macdonald-Laurier Institute for Public Policy True North in Canadian Public Policy President, Peterson Capital, Vancouver; Peter cabinet minister, now a partner at Fasken Board of Directors John Nicholson, former President, Canadian Martineau, Toronto; Maurice B. Tobin, the Chair: Rob Wildeboer, Chairman, Martin- Council of Academies, Ottawa; Jacquelyn Tobin Foundation, Washington DC. rea International Inc., Toronto Thayer Scott, past President & Professor, Managing Director: Brian Lee Crowley, Cape Breton University, Sydney. former Clifford Clark Visiting Economist at Research Advisory Finance Canada Board Secretary: Lincoln Caylor, Partner, Bennett Advisory Council Jones, Toronto Purdy Crawford, former CEO, Imasco, Janet Ajzenstat, Professor Emeritus of Poli- Les Kom Treasurer: , BMO Nesbitt Burns, now Counsel at Osler Hoskins; Jim Din- tics, McMaster University; Brian Ferguson, Ottawa ning, former Treasurer of Alberta; Don Professor, health care economics, University John Beck Directors: , Chairman and CEO, Drummond, Economics Advisor to the TD of Guelph; Jack Granatstein, historian and Erin Aecon Construction Ltd., Toronto; Bank, Matthews Fellow in Global Policy and former head of the Canadian War Mu- Chutter , President and CEO, Puget Ventures Distinguished Visiting Scholar at the School seum; Patrick James, Professor, University Navjeet (Bob) Dhillon Inc., Vancouver; , of Policy Studies at Queen’s University; Brian of Southern California; Rainer Knopff, CEO, Mainstreet Equity Corp., Calgary; Flemming, international lawyer, writer and Professor of Politics, University of Calgary; Keith Gillam , former CEO of VanBot Con- policy advisor; Robert Fulford, former editor Larry Martin, George Morris Centre, Wayne Gudbran- struction Ltd., Toronto; of Saturday Night magazine, columnist with University of Guelph; Chris Sands, Senior son Stan- , CEO, Branham Group, Ottawa; the National Post, Toronto; Calvin Helin, Fellow, Hudson Institute, Washington DC; ley Hartt , Chair, Macquarie Capital Markets Aboriginal author and entrepreneur, Van- William Watson, Associate Professor of Martin Mac-Kinnon Canada ; , CFO, Black couver; Hon. Jim Peterson, former federal Economics, McGill University. Bull Resources Inc., Halifax; Rick Peterson, The Macdonald-Laurier Institute for Public Policy exists to: • Initiate and conduct research identifying current and emerging economic and public policy issues facing Cana- dians, including, but not limited to, research into defence and security, foreign policy, immigration, economic and fiscal policy, Canada-US relations, regulatory, regional development, social policy and Aboriginal affairs; • Investigate and analyse the full range of options for public and private sector responses to the issues identified and to act as a catalyst for informed debate on those options; • Communicate the conclusions of its research to a national audience in a clear, non-partisan way; • Sponsor or organize conferences, meetings, seminars, lectures, training programs and publications using all media of communication (including, without restriction, the electronic media), for the purposes of achieving these objects; • Provide research services on public policy issues, or other facilities, for institutions, corporations, agencies and individuals, including departments and agencies of Canadian governments at the federal, provincial, regional and municipal levels, on such terms as may be mutually agreed, provided that the research is in furtherance of these objects. Table of Contents 2 Executive Summary 3 Sommaire 4 Introduction 4. Interpretation of Section 121 7 Legislative History 12 Legislative Context 13 Scheme of the Act 13 Purposive Interpretation of Section 121 Considered 14 Rounding the Legal Bases 15 Section 121 Jurisprudence 15 The Gold Seal Interpretation 17 The Gold Seal Interpretation Considered 18 The Backroom Politics 20 The Way Forward 23 Conclusion 24 Endnotes The author of this document has worked independently and is solely responsible for the views presented here. The opinions are not nec- essarily those of the Macdonald-Laurier Institute for Public Policy, its Directors or Supporters. May 2011 1 Executive Summary This paper argues that a single wrong-headed legal decision from Canada’s distant past has obscured and virtually destroyed our Constitution’s strong guarantees of free trade within the country. This argument implies that many of the existing barriers to the free movement of goods, including provincial liquor monopolies, agricultural marketing boards, the Canadian Wheat Board, provincial product regulations, and others, are not only inefficient but unconstitutional and subject to legal challenge before the courts. The paper’s analysis focuses on section 121 of the Constitution Act, 1867. Section 121, which requires interprovincial free trade, has traditionally been interpreted in the light of the Gold Seal Limited v. The Attorney General of the Province of Alberta case (“Gold Seal, 1921”). That interpretation limited the application of section 121 to pro- hibiting interprovincial “customs duties”, something that had not been an issue since Confederation in 1867. In other words, the constitutional protection prohibiting pro- vincial trade barriers has historically been interpreted very narrowly to include only provincial customs duties. The study includes an analysis of section 121 based on the Supreme Court’s contem- porary rules for interpreting our Constitution: the provision’s wording, legislative history, legislative context, and its place within the scheme of the broader Act. The paper concludes that the Gold Seal interpretation is inconsistent both with our found- ers’ vision for Canada and this present-day approach to constitutional interpretation, and clearly resulted from political expediency rather than honest legal reasoning. It maintains that a purposive and progressive interpretation requires a more robust role for section 121. Specifically, section 121, properly understood and applied, would prohibit any legal or financial impediment to the free flow of goods across Canada. The conclusion that section 121 offers much broader scope for prohibiting provincial trade barriers, if supported through legal challenges, could result in dramatic and profound changes to provincial and even federal economic policies. 2 Free Trade Within Canada Sommaire Cette étude défend l’idée qu’une seule mauvaise décision juridique prise dans le loin- tain passé du Canada a obscurci et pratiquement détruit les garanties solides en faveur de la liberté de commerce au sein de notre pays que l’on retrouve dans la Constitution. Cet argument implique que plusieurs des barrières existantes à la libre circulation des biens, y compris les monopoles provinciaux sur la vente d’alcool, les offices de com- mercialisation agricole, la Commission canadienne du blé, la réglementation provinciale des produits, et d’autres encore, sont non seulement inefficaces mais également incon- stitutionnelles et sujettes à être contestées devant les tribunaux. L’analyse se concentre sur l’article 121 de la Loi constitutionnelle de 1867. Cet article, qui prescrit le libre-échange entre les provinces, a traditionnellement été interprété à la lumière de l’affaire Gold Seal Limited c. Procureur général de la province d’Alberta (« Gold Seal, 1921 »). Cette interprétation a limité l’application de l’article 121 à l’interdiction de mettre en place des « droits de douane » entre les provinces, ce qui n’avait jamais été un problème depuis la Confédération de 1867. En d’autres termes, la protection con- stitutionnelle prohibant les barrières interprovinciales au commerce a historiquement été interprétée de façon très étroite pour n’inclure que les droits de douane appliqués par les provinces. L’étude comprend une analyse de l’article 121 qui s’appuie sur les règles contempo- raines de la Cour suprême pour interpréter la Constitution : la formulation de la clause, l’histoire législative, le contexte législatif et l’emplacement de la clause au sein de la Loi dans son ensemble. Le document conclut que l’interprétation donnée à Gold Seal est incompatible à la fois avec la vision qu’avaient les Fondateurs du Canada et avec cette approche contemporaine pour interpréter la Constitution, et qu’elle s’appuie claire- ment sur l’opportunisme politique plutôt que sur un raisonnement juridique honnête. L’étude soutient qu’une interprétation réfléchie et progressiste exige d’accorder un rôle plus ambitieux à l’article 121. Plus spécifiquement, si l’article 121 était compris et appliqué de façon appropriée, il interdirait tout obstacle légal ou financier à la libre circulation des biens à travers le Canada. Si cette conclusion voulant que la portée de l’article 121 pour interdire les barrières au commerce interprovincial est en réalité beaucoup plus large était confirmée par une contestation juridique, elle pourrait se traduire par des transformations considérables et profondes dans les politiques économiques des provinces et même du gouvernement fédéral. May 2011 3 Introduction A host of restrictive measures, including agricultural marketing boards and provincial liquor monopolies are probably unconstitutional and supported only by an obscure Supreme Court of Canada decision over eighty years old which rests on no principle of constitutional interpretation acceptable today. We are not accustomed to thinking of our Constitution as defending economic free-